Market Outlook for Law Firms: In 2008, “Flat Is the New Up”

Back in early March, we talked with some folks at Wachovia Wealth Management’s “legal specialty group” about the state of the market for law firms. They were optimistic.

But recently, we talked with them, and heard a different story. “We have the education … to admit when we’re wrong about things,” says Peter Haugh, managing executive of the group. “This is going to be a flat to worse year.” His colleague Kevin Conroy, a regional managing director, was equally downbeat.

Who are these guys? They offer banking and wealth-management services to law firms, lawyers and law-firm staff, and administer an industry survey that gauges the business and how law firms are faring compared with their peers. Currently, they’re in the process of meeting with firm execs around the country, mostly at 300+ attorney firms — and the news is not good. “Every firm is certainly feeling this period we’re in,” says Haugh.

Tapping credit: This Wachovia group extends credit lines to law firms, and lately firms “are using existing facilities to a greater extent than we’ve seen in the past,” says Haugh. He puts the increase at about 15-25%. Firms need the cash flow for operating expenses, he says, as the cycle has slowed for getting work and collecting receivables.

Scrutinizing partners: “The time has come that firms are going to get rid of some of the non-producing folks,” predicts Conroy, saying that’s especially the case for firms with two-tier partnerships where some people have already been demoted into non-equity ranks. “It’s taken law firms a long time to make the tough decisions,” he says. “There’s going to be an accelerated pace of making those tough decisions.” Haugh adds that he does not expect the cuts to affect partners whose practice areas are out of favor but rather the “dead wood walking the halls.”

Scrutinizing laterals: Lateral wannabes better get ready for the twice- or thrice-over. Firms are “doing homework that they wouldn’t have done in the past,” says Haugh, such as asking for client feedback and tax returns, the latter presumably to verify a lawyer’s income and financial soundness.

Bracing themselves: “I think everybody’s ready for a year when down five to six percent is going to be a good year, if not more,” says Haugh. Adds Conroy: “Flat’s the new up.”

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The Law Blog covers the legal arena’s hot cases, emerging trends and big personalities. It’s brought to you by lead writer Jacob Gershman with contributions from across The Wall Street Journal’s staff. Jacob comes here after more than half a decade covering the bare-knuckle politics of New York State. His inside-the-room reporting left him steeped in legal and regulatory issues that continue to grab headlines.

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